How to read a Cattle on Feed report without a broker translating it

The Cattle on Feed report comes out around the third Friday of the month, after the close, at 2:00 Central. By Monday morning the futures have moved, the analysts have written their notes, and somewhere a rancher is hearing that placements "came in above expectations" without knowing whether that was good for him. It was not. Here is how to read it yourself.

What it counts

USDA's National Agricultural Statistics Service surveys feedlots with 1,000 head or more capacity, which is roughly 85 percent of the cattle on feed in the country. The report covers the first of the month and three numbers dominate it:

• On feed: the total inventory in those lots.
• Placements: cattle that went into the lots during the previous month.
• Marketings: cattle that left for slaughter during the previous month.

Every number is reported as a head count and as a percent of the same month last year. The year-over-year percent is what moves markets.

Placements: the one that matters for you

Placements are the cow-calf producer's number. Every calf or yearling placed on feed this month is a fed steer next spring. Low placements now mean fewer fed cattle in five to seven months, which supports fed cattle prices then, which supports what the feedlot can afford to pay you for calves now. High placements mean the opposite.

The report also breaks placements out by weight: under 600 pounds, 600 to 699, 700 to 799, 800 to 899, 900 to 999, and over 1,000. Light placements in the fall mean calves went straight to the lot instead of a backgrounder or wheat pasture, usually because grass is short or calf prices make the feedlot the highest bidder. Heavy placements mean yearlings coming off grass. Together they tell you how long the pipeline is.

Marketings: the demand side

Marketings tell you how fast the feedlots are moving cattle out. Marketings well above last year with on-feed numbers flat means feedlots are current and have leverage over the packer. Marketings falling with on-feed rising means cattle are backing up and the packer has the leverage. Days on feed have been running long this year, which is why on-feed inventory can be above last year at the same time placements are at record lows.

Expectations, not the number

The market does not trade the report. It trades the report against the pre-report survey. Analysts publish estimates the week before, and the futures already reflect the average. If placements come in at 95 percent of last year and the trade expected 92, that is bearish, even though 95 is still a small number. If they come in at 92 and the trade expected 95, feeder futures will gap higher Monday. Learn to look for the average estimate, not just the USDA number.

Other lines worth a look

• Heifers on feed, reported quarterly in January, April, July, and October. When the heifer share of cattle on feed drops, producers are keeping heifers home. That is the earliest real evidence of herd rebuilding you will get, ahead of the January inventory report.
• Cattle on feed over 120 days, and over 150 days, in the monthly data tables. A rising count is cattle backing up.
• Other disappearance: death loss and cattle moved out for reasons other than slaughter. Usually small. When it is not, something happened.

Where to find it

NASS publishes the PDF and the data tables free on the Cornell library site. The Livestock Marketing Information Center summarizes it, and most extension livestock economists publish a one-page read within a day. You do not need a subscription to any of it.

How to use it

You are not going to trade futures off this report. What you can do is understand the direction of feeder demand for the next two quarters, which is what determines whether the sale barn price in November will be closer to the top of the year or the bottom. When placements are at record lows and heifers on feed are falling, the trade is telling you supply is tight and staying tight. That is the report you want to see before you sell calves. It is also, for what it is worth, the report we have been seeing.